Question

Short answer.

From your readings and work with the Financial Statements, discuss why the Securities and Exchange Commission require a third-party accounting firm to sign off on financial information provided by publicly held companies on the Financial Statement.

Answer 1

The following are the reasons why financial statements must be signed by the third party accountant:

• To protect the interests of outsiders like investors, lenders, the commission is increasing its dedication through number of forums to have globally accepted and high quality financial reports.
• It ensures that the information provided is independent and objective scrutiny thereby increasing the reliability of financial statements.
• To protect the public faith. The sign off of financial statements increases the reliability on company’s financial statements.
• When the organizations are dealing with cross border transactions, it need not have separate set of financial statements. If it is signed off by a third party, it maintains a standard.
• To ensure that there is no misleading information disclosed or any important information has been missed in the statements.
• When it is signed off by a third party, it provides a guarantee that all the information in the statements equally tally whether it may be balance sheet, income statements etc.
• When the statements are signed off by an expert, it ensures that the company is in compliance with legal rules, acceptance with GAAP etc.